Eternalights - a little business help...

This may be the strangest request posted here yet. In preparing the annual report for our board of directors and investors, the most common request is the "value" of our product lines. Of course, we know what the revenue value is (in our marketing channel). But I would like to add to that knowledge some shotgun speculation from professional CPFr's with business acumen. Specifically, what do you think the market value of the Eternalight product line is? In otherwords, if you were a manufacturer, what would you pay for the exclusive rights to make and sell the Eternalight line of products? Thanks in advance to all who respond to this post.

I've worked more on the accounting side of things but I woud say that I would need to know the cost to produce the light. Then I would estimate its sales in various markets. (Deep discounters like Walmart, sporting goods stores, and niche market or boutique stores.) Based on those numbers I would offer the highest amount I could and still meet my expected ROI. So, probably a ballon payment up front and share of the gross for a period of time. (Typical acceptance of risk for failure to meet ROI is higher among established manufacturers so if it's a small company I suspect that their ROI would have to be met in three to five years.) I know this is a little vague but I hope it helps some.

Tom,

Too may variables to give you a solid equation but here is some info that might help. A few first things gathering from what we already know from Technology Associates. 1. You have a history to go on. 2. Product is low-cost high-volume. 3. Process and equipment perfected. 4. Distribution channels already in place.

In the current economy 2 methods are generally used. Either 3-7x annual net (3-4 is common, higher multipliers for short life, high profit, usually high tech ventures) OR 1X Gross. As long as you are making at least 20-25% you should find that these numbers are close.

How to determine the multiplier. With this product you have to look at practical life of the product. The easiest way to figure this out is to work the buyers scenario backwards. Lets take an example that has nothing to do with your company.

A product has a history of 20% annual net, a volume of $100K/yr, expected lifetime of 5 yrs. A buyer will want to pay off the price of the product line in 3.5 yrs. So $70K to buy the rights to the product is good for the buyer. In this example it's simple to figure out multiplier of 3.5

Now add to this simple example your history of growth, per year, projected out as far as the life of the product, startup manufacturing cost or lack of it if equipment is part of the sale, current inventory, supplier contact info, R&D, Distribution, resale value of the product rights at the end of its projected life, etc and you will come out with a figure.

Now the interesting part. If selling the product line ever comes up. Simply put, you want a buyer with alot of ego. You want a buyer that thinks he can do it alot better than you can. Draw your conclusion from that statement and you'll see why.

Please feel free to contact me if you have any questions.

Best regards,
Randy

Thank you gentlemen, food for thought. Don't worry, the Eternalight product line is not for sale - well, of course, everything is for sale - but we're not actively seeking to sell it. I'm just looking for some speculation here that may be useful in my report and I appreciate your input.